Take care when classifying your workers to avoid costly audits

Job duties, not job titles, determine pay classification and workers’ compensation codes. Not making the correct choice can cause problems, or even prompt a workers’ comp or federal wage audit

When hiring a new employee, it is important to review the individual’s primary job responsibilities before determining whether they will be paid on an hourly or salaried basis.  It is also critical to determine a correct job code when reporting the new employee to your workers’ compensation carrier.

Although employers may have business reasons for making decisions, without professional guidance, employers can get caught on the wrong side of a Department of Labor wage and hour audit or a workers’ compensation audit.

Here are some key areas to consider:

Salary/exempt employees:  Many employers pay all office or supervisory employees on a salaried basis.  For most employers, that means no docking for missed time and no overtime pay.  This is a common violation with the U.S. Department of Labor and without timekeeping documentation, employers often lose during an audit.  Additionally, employees should not be paid on a salaried/exempt basis unless they make at least $455 per week and the employee’s primary duties include “the exercise of discretion and independent judgment with respect to matters of significance.”  Other factors may also apply to this decision about exempting an employee

Workers’ compensation class codes:  Insurance carriers often conduct workers’ compensation audits to determine whether employees are in the correct class code. Misclassification discovered during an audit can result in unexpected, additional insurance premiums. This can add up to thousands of dollars you were not expecting to pay.

1099 contract employees:  This is another area where employers should be sure they understand regulated guidelines.  Contract employees set their own hours, determine the amount they will be paid, determine how the work will be done, pay their own taxes and carry workers’ compensation insurance on themselves.  If you are issuing 1099s to individuals, yet directing their work, you may want to review this situation with one of our HR professionals.

Remember to take the proper steps to classify your employees correctly when they begin employment or change positions.  Let BCN help you before you get audited. Our HR staff is available to discuss any concerns you have in these areas, either regarding existing staff, or in determining direction before you make your next hiring decision.

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Sue Kester, HR Manager

When can you dock a salaried employee’s pay?

Docking an exempt or salaried employee’s pay is only allowed in certain circumstances.

Generally, the Fair Labor Standards Act (FLSA) does not permit deductions from exempt employees. According to the regulations, the amount of money a salaried employee earns isn’t dependent on the number of days or hours he or she works. You also can’t deduct money based on the quantity or quality of work the employee produces.

However, there are some exceptions to the rule:

  • Exempt employees do not need to be paid for any workweek in which they perform no work.
  • Deductions may be made for exempt employees who are absent for a day or more for personal reasons other than sickness or accident. (Deductions must be made in full-day increments, not for partial-day absences.)
  • Deductions may be made for exempt employee absences of one day or more caused by sickness or disability, if the company maintains a plan that compensates for loss of salary caused by sickness and disability and the employee has exhausted his or her “bank” of leave.
  • Deductions may be made for penalties imposed for safety rules violation of major significance
  • Amounts received by an employee for jury or witness fees or military pay may be offset. Beyond those offsets, deductions may not be made for absences caused by employee jury duty, attendance as a witness or temporary military leave.
  • Deductions may be made for unpaid disciplinary suspensions of one or more full days for breaking workplace conduct rules.
  • Payment may be adjusted for partial weeks worked during the initial or final weeks of employment. For example, if Joe resigns in the middle of a workweek, pay him only for the days actually worked in that week.
  • In some cases, when a salaried/exempt employee has worked a reduced or intermittent work schedule under the Family and Medical Leave Act (FMLA),pay may be adjusted. (You can convert a salaried employee to an hourly rate during the time he or she is on intermittent or a reduced workweek FMLA leave without destroying the person’s exempt status.

If your company inadvertently makes an improper deduction, it must be corrected immediately to avoid penalties.  If an employer is found to be “intentionally” engaging in improper pay docking, they will lose the overtime exemption for the pay period the docking occurred for other employees working in the same job classification for the same manager responsible for the deduction.

This means that the employer must pay normally exempt workers overtime wages if their hours exceed 40 hours for one work week.

If you are not sure when to dock a salaried employee’s pay or have questions regarding pay practices, please contact your BCN Services specialist for guidance.

List of permitted deduction courtesy of TrackSmart

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Lisandra Garrow, Partnership Manager

Tips for employers: When to pay an employee’s travel expenses

We often get the question: “Do I need to pay my employee for travel time?”  Unfortunately, there is not a simple “yes” or “no” answer.  A number of factors are involved, including when the employee is traveling, how the employee is traveling, and what is the employee doing at the destination.

Our HR team is happy to talk through any individual case you may have, but here are some guidelines on common situations:

Home-to-work travel:  Normal home-to-work travel is not compensable time.  However, if an employee is asked to travel to an alternate destination for work or to attend training, he or she should be compensated for any time that would be over and above normal home-to-work time.

(As a side note, any time spent in training sessions — whether it be during the employee’s regular work day or outside of the employee’s normal working hours — should be paid as hours worked if the employer has requested or required the training.)

Workday travel:  Time spent by an employee in travel as part of his or her principal activity, such as travel from job site to job site during the workday, must be counted as hours worked. Where an employee is required to report at a designated meeting place to receive instructions, perform other work or to pick up tools, travel from the designated place to the workplace is part of the day’s work and must be counted as hours worked regardless of contract, custom or practice.

Travel on a non-work day:  Even if the employee travels on a day he or she would not normally be scheduled (Sunday for example), if he is traveling for the benefit of the company during his normally scheduled work shift (between 8 a.m. and 5 p.m., for example) that time would be considered time worked and should be paid accordingly.

Overtime:  Paid travel time is paid as worked time.  If an hourly (or non-exempt) employee has more than 40 hours in combined work and travel time, those hours must be paid at time and one half of the regular rate.

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Sue Kester, HR Manager

Employer tips for employees seeking W-4 filing advice

For many employees, completing the Form W-4 can be a confusing and frustrating process.  The instructions are lengthy (2017 Federal Tax Guide or Circular E is 69 pages long).  As a result, many employees turn to their manager or supervisor for help in determining how to complete these forms.

Although we all want to help our employees, it is important to remember employers should always avoid giving employees specific tax filing advice and should never complete these forms for employees.

There are several different tips that employers can offer to employees to help in the correct tax filing decision without putting themselves at risk.  Here are a few:

  • Employees can change their filings at any time and as many times as they would like by completing and submitting new W4 forms. Don’t worry about getting it perfect the first time, you can always make adjustments.
  • Don’t forget about the “additional amount” option on the W-4, which allows employees to fine-tune their withholding amount. This is an under-utilized option employees can consider.
  • Employees may want to consult a certified tax professional. Such professionals will be able to give knowable filing advice that employers are not able to.
  • Understand your pay cycle. Whether employees are paid weekly, biweekly, or semi-monthly this will affect their withholding calculation.
  • Keep in mind any payroll deductions you have in place. Many benefit plans are deducted on a pre-tax basis and will lower an employee’s taxable wages.  Employers can help determine what deductions are pre-tax and which are not.

In addition to these tips, the IRS has an online withholding calculator that is much easier to navigate and can be found at https://www.irs.gov/individuals/irs-withholding-calculator . Encouraging employees to use this online calculator can alleviate a great deal of pressure and frustration.

For more information or for guidance on how to address specific employee questions, please contact BCN Services at 1-800-891-9911.

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Dani Austin, Payroll Supervisor

Employee Reimbursements: When are they taxable and when are they nontaxable?

Whether it’s supplies for the office, travel expenses or a business lunch, employee reimbursements are now commonplace for employers.  Determining when those reimbursements are subject to taxation and when they are nontaxable is an employer’s responsibility and can often seem like a daunting task.

According to the Internal Revenue Service, employee reimbursements fall into two categories: accountable and non accountable plans.  The IRS also provides employers with guidelines so they can best determine which plan to use for your reimbursement.

Reimbursements under accountable plans are nontaxable.  In order to qualify, the employee must provide documentation and/or receipts and return any unspent funds to the company.  For example, an employee purchases a plane ticket with a personal credit card for an out-of-town meeting.  The employee than submits the receipt and is reimbursed the exact amount of purchase.

Reimbursements under nonaccountable plans are counted as taxable wages.  For these reimbursements, employees are not required to provide receipts or return unused funds.  For example, an employee is given $50 in order to purchase supplies for a presentation and does not provide any receipts or return any portion of the funds unspent.

An easy illustration can be made using employee meal reimbursements.  An employee is given $10 for lunch in cash.  If the employee provides both the receipt for that lunch and any unused portion of cash, then the lunch falls under an accountable plan and is nontaxable.  If the employee does not provide a receipt or return the unused portion of the cash, this lunch would fall under a nonaccountable plan and should be counted as taxable wages.

Every employer encounters different challenges in regards to employee reimbursements so if you have any questions or would like further information, please contact BCN Services and we would be happy to assist.

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Dani Austin, Payroll Supervisor

Review pay practices to avoid missteps and be compliant

Although the final federal overtime rule was halted from taking effect on Dec. 1, 2016 this might still be a good time for employers to take action.  The Fair Labor Standards Act (FLSA) changes were designed to address salaried employees’ pay threshold and overtime.  Although the future of the overtime rule is uncertain, employers may still want to review their pay practices, particularly in the areas listed below.

Hourly employees

Travel time – Hourly employees that spend time traveling for work (other than normal home-to-work travel) must be compensated for these hours as regular hours worked and should be counted as such when determining overtime.  Travel to a distant location and/or overnight travel becomes more complicated and a policy should be in place to address this.

Breaks – Company provided breaks for employees are not required by law (there are exceptions in some states for minor employees).  If provided, breaks of 5 to 20 minutes are considered compensable, and an employee’s pay should not be reduced.  Bona fide meal periods (typically lasting at least 30 minutes), serve a different purpose than coffee or snack breaks and, thus, are not work time and are not compensable.

Salaried employees

Misclassification –  To qualify for overtime exemption, employees must meet certain tests regarding their job duties and be paid a salary basis of not less than $455 per week (at the current time.)  Job titles do not determine exempt status.  For an exemption to apply, an employee’s specific job duties and salary must meet all the requirements of the Department of Labor’s regulations.  Many employers run into trouble when the job duties test is applied.  Details of these exemption tests can be found here: http://www.flsa.com/coverage.html.

Docking – There are very limited situations in which a salaried employee’s pay may be docked or reduced.  Pay may not be docked or reduced for a partial-day absence.  Additionally, full-day absences of one or more days must be paid unless the absence is for personal reasons other than illness or disability.

Neither an hourly or salaried employee’s pay can be reduced for company property damage or loss unless the employee has authorized such a deduction in writing.

 

Common pay practice missteps are often made in these areas.  There are many non-compliant practices that are widely followed, particularly some that appear to be industry specific.  However, this rationale will not protect an employer from being responsible for back pay and penalties when a wage-and-hour claim is filed or a Department of Labor investigator shows up at the door.

Concerns?  The professional staff at BCN can review your current practices, make recommendations, and help you to plan and communicate any changes in pay practices to employees.

 

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Sue Kester, HR Manager

 

State tax reciprocity: What it is and how it can affect your employees

If you have hired, or are thinking of hiring, employees who live in a state different than your worksite,you should be aware of the tax implications.

Many states have entered into tax reciprocity agreements with surrounding states, allowing employees to pay state tax for only the state that they live and not for the state in which they work.  For example, Michigan and Indiana have a reciprocal agreement so if your worksite is in Michigan and you hire an employee living in  Indiana, the new employee would pay only Indiana income tax.

If there is no reciprocal agreement between states, an employee would pay taxes for both the state they live and the one they work in.  For example, the state of New York has no state tax reciprocity, so an employee working in New York state and living in nearby New Jersey is responsible for paying taxes in both states.  We always encourage employees in this situation to consult a tax professional, as there are still many states without tax reciprocity agreements that offer tax credits with the employee’s year-end tax filing.

Employees responsible for incorrect tax deductions

Being aware of current reciprocity agreements as well as future changes is incredibly important as an employer.  Employees with taxes incorrectly deducted can be charged not only the taxes owed, but for fees and penalties as well.  This can lead an employee to have a negative experience within your company.  Conversely, having the knowledge base of state tax reciprocity can not only help in producing an accurate payroll, but also helps you to answer employee questions confidently and hire new employees with ease.

For easy reference, here is a chart with information sourced from the American Payroll Association detailing current state reciprocity agreements. If you would like more information or have any questions, give BCN Services a call at 1-800-891-9911.

 

State Reciprocity Grid (Updated November 16, 2016)
Worked-In State Reciprocal Lived in States
District of Columbia Any Other US state
Illinois Iowa, Kentucky, Michigan, Wisconsin
Indiana Kentucky, Michigan, Ohio, Pennsylvania, Wisconsin
Iowa Illinois
Kentucky Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, Wisconsin
Maryland District of Columbia, Pennsylvania, Virginia, West Virginia
Michigan Illinois, Indiana, Kentucky, Minnesota, Ohio, Wisconsin
Minnesota Michigan, North Dakota
Montana North Dakota
New Jersey Pennsylvania
North Dakota Minnesota, Montana
Ohio Indiana, Kentucky, Michigan, Pennsylvania, West Virginia
Pennsylvania Indiana, Maryland, New Jersey, Ohio, Virginia, West Virginia
Virginia District of Columbia, Kentucky, Maryland, Pennsylvania, West Virginia
West Virginia Kentucky, Maryland, Ohio, Pennsylvania, Virginia
Wisconsin Illinois, Kentucky, Michigan

 

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Dani Austin, Payroll Supervisor

Taxable wage base for Social Security to increase in 2017

Each year, the Internal Revenue Service determines whether or not the limit on Social Security taxable wages will increase.

The Social Security Administration determines this annually by calculating the national average wage index.  In 2017, SSA will increase the taxable wage base from $118,500 to $127,200 for both employee and employer.

What does this mean to employers?  In 2016, an employer paid $7,347.00 for each employee that reached the wage cap and 2017, employers will pay $7,886.40, an increase of $539.40 per employee.

Employees at the wage cap will also see an additional $539.40 deducted from their checks.  It is important to note that employees potentially affected by this change should be notified in advance of the effective date of Jan. 1, 2017.

More information online:

  • For a look back at the increases over the years and for more about the contribution and benefit base visit the Social Security website at ssa.gov/OACT/COLA/cbb.html .
  • For a history of the taxable maximum, the rationale for the changes and how the SSA arrived at today’s process, visit www.ssa.gov/policy/docs/policybriefs/pb2011-02.html

If you have questions about how your employees are impacted by Social Security deductions, contact the experts at BCN Services for assistance.

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Amber Heckaman, Senior Staff Accountant

How to address concerns when moving an employee from salaried to hourly

With upcoming changes increasing the federal annual wage minimum taking effect December 1, 2016 there may be some anxiety or discontent with some of your employees who will be moved from exempt (salaried) status to non-exempt (hourly).

The annual wage minimum requirement for salaried/exempt status will change from $455 per week ($23,660 annually) to $913 per week ($47,476 annually) under this legislation.

When moving employees to an hourly classification under the new regulations, it’s helpful to understand the employee’s perspective.  Although the intent of the Fair Labor Standards Act is to protect employees from being overworked and underpaid, many employees perceive an hourly classification as having a lower status compared with those classified as salaried.

In delivering this message, here are a few tips that may ease their concerns:

  • When explaining the reclassification, explain that this change is based solely on legislation enacted by the U.S. Congress and has nothing to do with their job performance. Assure them that this is not a demotion, but a pay reclassification.  Explain to them that the change to hourly status is intended to assure that they are paid for overtime hours they work.
  • There also will be an adjustment phase. Employees that are now salaried may not be used to tracking their work hours or using a time-keeping system.  It is important to stress that this will be the new norm and that they must report all hours worked, including work from home whether via remote web or phone calls.
  • Each company will have different interpretations of flexibility in the workplace, but if your employees are used to a certain level of flexibility when with their schedules, you may want to continue that practice. Explain to them that they will have the same flexibility for doctor’s appointments, long lunches with an old friend, or leaving early on a Friday during the summer.  Make it clear that when they work 40 hours for the week, their weekly pay will remain the same.  But be sure they understand that if they do not make up this flexible time, their check will be less.
  • Keep an open door policy with your employees to address their concerns. It’s a good idea to map out potential paths for them to move into positions that remain salaried positions.  Help them understand what those positions are and direct them towards achieving their goals so they are able to move into those jobs.  While doing so, however, be sure to stress that their value and responsibilities within the company in their current position has not changed.  Only their pay structure has.

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Frank Lewandowski, PHR, SHRM-CP

I-9 Compliance: How much is it costing you?

The federal Form I-9 is deceptively simple, yet crucial in every new hire process. The form is designed to help employers verify the identity and certify that each employee can legally work in the United States. Can you imagine being fined hundreds of dollars because an employee forgot to sign or date it? Multiply one mistake by hundreds or thousands of employees and the result is a huge burden for business owners who fail to realize the importance of properly completing the I-9.

The U.S Immigration and Customs Enforcement, referred to commonly as ICE has been hitting companies hard with I-9 audits recently, and there is no sign of them slowing down. According to a recent Associated Press article, audits of employer I-9 forms increased from 250 in 2007 to more than 3,000 in 2012, and this number will likely continue to grow. ICE handed out more than $13 million in fines in 2012 based on violations discovered during these audits.

The USCIS states that fines for improper completion and retention and not making I-9 documents available for inspection range from $100 to $1,100 for each I-9. Fines for purposely hiring or continuing to employ unauthorized employees range from $250 up to $11,000 per offense. Employers who show a continued pattern of hiring unauthorized workers are liable for criminal penalties of as much as $3,000 per employee and may be subject to a minimum prison penalty of 6 months.

All companies, regardless of size, state, or industry, are subject to an ICE I-9 audit. A large clothing retailer reached a settlement with ICE of more than $1 million dollars in fines regarding I-9 documentation violations discovered during a 2008 audit. A drywall company was fined $173,250 for 225 separate I-9 paperwork violations. Additionally, a worldwide staffing company has been fined $227,000 in civil fines for improperly completing the Form I-9.
As you can imagine, these fines have greatly impacted companies worldwide, and could have been prevented with proper training and knowledge.  So what can a business do to properly protect itself?

The rules around I-9 forms can be very specific and sometimes confusing. As your trusted HR partner, BCN takes pride in ensuring our clients are in compliance, and trained properly in the I-9 paperwork procedures, avoiding the headache and stress of massive fees and penalties. If you have any questions or would like more information about  Form I-9, contact your HR specialists at BCN Services.

 

 

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Taylre Reed, Partnership Manager